""AARP"":http://www.aarp.org, the nation's largest nonprofit membership organization established to support the social wellbeing of individuals over the age of 50, filed a lawsuit this week against ""HUD"":http://www.hud.gov on behalf of three surviving spouses of reverse mortgage borrowers who are now facing foreclosure.
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The lawsuit, filed in the U.S. District Court for the District of Columbia, names HUD Secretary Shaun Donovan as the defendant and alleges that the federal agency has made changes to established federal rules that offer protection for surviving spouses to allow its lenders to initiate foreclosure and eviction actions against the plaintiffs.
The plaintiffs, from Indiana, New York, and Maryland, are represented by AARP Foundation Litigation and the Washington, D.C. law firm of ""Mehri & Skalet, PLLC"":http://www.findjustice.com/. They are seeking an injunction ""prohibiting HUD from abandoning long-standing rules and from illegally foreclosing on surviving spouses,"" according to a statement from AARP.
The organization says the case will have broad national implications because the outcome will determine whether spouses will be able to stay in homes that are now ""underwater"" as a result of the housing downturn, a risk that reverse mortgage borrowers have always paid insurance premiums to protect against.
HUD rules in place since 1989 state that a borrower or heirs would never owe more than the home was worth at the time of repayment, AARP explained. But the organization says at the end 2008, HUD abruptly changed the policy and said that an heir â€" including a surviving
[COLUMN_BREAK]spouse who was not named on the mortgage â€" must pay the full mortgage balance to keep the home, even it if exceeds the value of the property.
AARP says this subjective amendment does not just violate HUD rules, it violates existing contracts between reverse mortgage borrowers and lenders, and negates a key purpose for which borrowers had been paying insurance premiums.
""HUD has inexplicably turned existing reverse mortgage policies upside down,"" said Jean Constantine-Davis, a senior attorney with AARP Foundation Litigation. ""These are older individuals with limited means who have been blindsided by arbitrary, retroactive decision making.""
Steven A. Skalet, of Mehri & Skalet PLLC, says HUD's changes to reverse mortgage terms mean elderly borrowers' spouses and heirs pay more to keep their home than an unrelated purchaser would have to pay to buy the property.
""[W]e intend to make HUD honor the representations and promises they made to borrowers when they signed up for these government-insured loans,"" Skalet said.
A reverse mortgage is a loan that allows older homeowners to convert the equity in their homes into cash. Reverse mortgage borrowers are not required to make periodic payments to repay the loan. Instead, the loan balance increases over time and the loan does not become due and payable until the last homeowner dies, moves permanently, or sells the home.
The loans are insured under the Federal Housing Administration's (FHA) Home Equity Conversion Mortgage (HECM) program and because of the complexity of the program, Congress included special protections for HECM borrowers.
According to the lawsuit, one protection is that no borrower or their heirs can be liable for more than the value of the property. A second protection in the HECM statute provides that borrowers cannot be forced to move from their homes until the HECM terminates.
A HUD spokesperson declined to speak about the allegations brought by AARP because the agency ""does not comment on pending litigation.""